Marks & Spencer has posted better-than-expected first-half profits after seeing a surge in food sales and further recovery in its clothing unit as its turnaround plan gathers pace. However, the group warned of uncertainty ahead due to last week’s Budget and continued cost pressures.
M&S saw its total profit before tax and adjusted items climb 17.2% to £407.8 during the six months to 28 September on sales up 5.8% to £6.52bn.
Food sales climbed 8.1%, with a like-for-like rise of 7.5%, driven by volume growth in the UK of 6.5%. The retailer noted that market share was up 30bps to 3.7% during the last quarter as moves to improve its product offer and price competitiveness continued to attract more shoppers.
The food unit’s operating profit jumped 34.5% to £213.1m after margins increased from 4.1% to 5.1%. M&S noted that structural cost reduction initiatives largely offset cost inflation and enabled the benefits of volume growth to flow to improved profitability.
The group opened two food halls in new full line stores during the period, along with three new standalone stores. Four store renewals were also completed, with a further eight planned for the second half. M&S noted that stores that underwent renewal last year have seen sales grow by a further 9%. Meanwhile, new format trials have included the introduction of the full M&S range to smaller stores and delivered “encouraging results”.
Meanwhile, the group’s Clothing & Home division saw sales increase 4.7%, with like-for-likes up 5.3%. M&S highlighted that its sales growth accelerated in the second quarter (+8.1%) compared with the first (+1.3%) due to more seasonable weather and further improvements in the brand’s style perception after an overhaul of its women’s and men’s ranges.
The unit’s operating profit only edged up 0.5% to £242.2m. This came after margins slipped from 12.4% to 12.0% as investments in technology and digital development were only partly offset by cost savings.
In the first five weeks of the second half, M&S said its overall trading remained on track, and it was confident of making further progress in the remainder of the year.
However, it noted that cost inflation had run well ahead of overall inflation during the first half, and the consumer environment was uncertain. It expects that backdrop to persist in the second half.
CEO Stuart Machin stated that the recent Budget’s long-term impact on its business, suppliers, and customers was, for now, “uncertain”. However, he added: “We are confident and we remain on track and focused on what is in our control. We have the best Christmas food range I’ve seen in my time at M&S and the most stylish seasonal clothing offer yet, and we know customers are looking forward to celebrating Christmas with M&S.”
Shares in M&S have soared nearly 75% over the past year, recently climbing to an eight-year high as moves to modernise its store estate, e-commerce operations, supply chain and product offer paid off.
Richard Chamberlain, a retail analyst at RBC Capital Markets, said M&S “has been making good progress with its food business, helped by an improved value for money perception, while its clothing offer has benefited from a stronger digital offer, third-party brands and a better bought range, with improvements in style, quality and value perception”.
NAM Implications:
- M&S are patently well on the way back.
- Are you in a position to optimise your fair share of sales and investment?
